Rockstar’s final episodic content for “Grand Theft Auto IV” hits Xbox Live on Oct. 29 – and today the company is giving the first peak at what the add-on will look like with the trailer "You’ll Always Be The King of This Town".

And, not to spoil the fun, but it might help to have your boogie shoes handy - along with an extra wardrobe. The Ballad of Gay Tony” will also bring the usual level of chaos to Liberty City.

As Luis Lopez, part-time hoodlum and full-time assistant to legendary nightclub impresario Tony Prince (aka "Gay Tony"), players will struggle with the competing loyalties of family and friends, and with the uncertainty about who is real and who is fake in a world in which everyone has a price.

The downloadable content will cost $19.99 (or 1600 MS Points). It will also be available as part of a retail release called “Grand Theft Auto: Episodes from Liberty City”. That disc will feature the content from the first episodic release (“The Lost and Damned”) as well as “The Ballad of Gay Tony” on one disc for $39.99. It will not require players to own a copy of “GTA IV” to play. 

The iPhone just became a much, much bigger threat to the traditional video game industry.

Rockstar Games has announced plans to release “Grand Theft Auto: Chinatown Wars” on the iPhone and iPod Touch this fall.

“Chinatown Wars” began as a Nintendo DS exclusive. It never really found an audience, though. Once the exclusivity window expired, Rockstar announced plans for a PSP version (which will come out Oct. 20).

The announcement comes on the heels of Rockstar’s another press release, noting that the forthcoming “Beaterator” is also headed to Apple’s products this fall. A PSP version of that game is due around the same time, as well.

Rockstar’s parent company Take Two Interactive was slow to get into the iPhone market, but its first effort - “Civilization Revolution” - was a notable hit. It quickly became the top-selling paid application and is still a fixture in the Top 25.

Development of iPhone ports of games for major publishers is basically an incidental expense. The engine and assets are easily moved over from other platforms and the conversion process is a relatively painless one.

Pricing is key, though. iPhone users aren’t likely to spend more than $10 on an app, no matter how prestigious. Will Rockstar keep the price at a reasonable level or try to push the limit on the power of the “GTA” name?

Take Two and Rockstar aren’t likely to break down sales of the iPhone version versus the PSP and DS versions, but the numbers are likely to leak. And it will be very interesting to see which platform sells the most copies (and makes the most profit).

If it’s the iPhone version, we could be a lot closer to an iPhone exclusive game of a major franchise than we were a month ago. 

Don’t look for any more “Godfather” or “Grand Theft Auto” games in China.

The Chinese Ministry of Culture has forbidden websites from featuring or publicizing games that heavily feature gangs, obscenity or gambling -- and says it will severely punish sites that try to skirt the law.

“These games encourage people to deceive, loot and kill, and glorify gangsters’ lives. It has a bad influence on youngsters,” said a report from the Culture Ministry carried on the Xinhua news agency.

My colleague Clifford Coonan has more on the ban itself, but the implications for the gaming industry are notable.

Gang games are still a big part of the industry these days. Beyond the examples above, there’s also THQ’s “Saint’s Row,” Take Two’s “Mafia II” and the upcoming “APB” – a massively multiplayer online game for the PC, which are the most popular types of games in China.

And, depending on how broad a definition of the word ‘gangs’ the Ministry of Culture decides to take, the “World of Warcraft” juggernaut could even find itself at risk. While Blizzard Software banned casinos in the game four years ago, zealots could label Horde guilds as a gang – particularly in the PvP zones (where players are permitted to kill each other’s characters).

There are implications beyond big, traditional publishers as well. Facebook’s most popular game is “Mafia Wars” – which could give the government further reason to continue blocking the social networking site. (After the riots in Xinjiang earlier this month, China blocked access to Facebook and Twitter. It’s unknown if that ban will be permanent or not.)

Like it or not, the ‘gang’ subgenre of gaming is not going away anytime soon. And China is a growing market for the industry, as developers and publishers finally begin to get a handle on ways to combat the country’s significant piracy problem. This move by the government could eventually have notable effects on the industry as a whole. 

Two big titles that were originally planned for release this holiday season have fallen out of the pack.

Sony has delayed “Heavy Rain” until 2010, while Take Two Interactive has done the same with “BioShock 2”. The moves are bound to upset some fans, but could ultimately prove beneficial for both titles.

“Heavy Rain” is an original IP – and would have found itself up against some serious competition during the holiday period. Historically, big sequels rule the sales charts at the end of the year. With eagerly awaited installments in the “Call of Duty” and “Splinter Cell” franchises leading the way, it’s very possible that “Heavy Rain” would have fallen by the wayside as consumers curb their spending.

It happened to EA and “Mirror’s Edge” last year. The game was a sales dud, never gaining any traction against bigger titles.

The story’s a bit different for “Bioshock 2”. As the sequel to one of the biggest games of 2007, it has an established fan base. The new game, though, isn’t being made by the same development team that created the original. Four studios are working on “Bioshock 2” at this point, which has set off warning bells for fans. The game did not have a particularly strong showing at E3 last month either.

 “The decision to shift a release date is never an easy one, especially with a product as highly anticipated as ‘BioShock 2’,” said Ben Feder, CEO of Take-Two in a statement. “We felt that it was essential to invest the additional time to ensure that this title will deliver what its fans expect and deserve.”

Technically, Take Two did not officially say the game (which was originally due in early November) will not be released this year. It simply moved it out of its fiscal 2009 earnings release schedule. But reading between the lines, it sounds like this could be a noteworthy delay.

The original “BioShock” was scheduled to be converted into a film helmed by Gore Verbinski, though that production was stuck in a holding pattern earlier this year. Producers are considering moving the production outside of the U.S. to take advantage of a tax credit.

One of the stories I missed while away for my long weekend was the delay of Universal's "Bioshock" movie.

As Michael Fleming reported in Variety, Universal simply became uncomfortable with the budget that would be needed to fulfill the vision of John Logan's script and director Gore Verbinski's pre-production.

That too-high budget being reported is $160 million, though I've been hearing from sources it was in fact substantially higher: The film was going to need over $200 million for production. Universal balked, Verbinski felt he couldn't come in much lower, and now they're at a standstill.

Apparently there was a substantial amount of work happening on "Bioshock," especially on the early art and visualizations side. There was even some early casting in the works.

But that's all on hold now. The pre-production staff has dispersed and Verbinski is left talking with Universal about whether there's a cheaper version of "Bioshock" to be had.

One question undoubtedly on the studio's mind is "Bioshock's" mature themes. If the film was going to be anything like the game in its horror elements and weighty moral issues, it would have merited an R rating and appealed primarily to adult audiences. After the relative failure of Warner Bros. "Watchmen" adaptation, which has grossed only $107 million so far, Universal would have to be concerned. If it's going to spend anywhere close to $200 million or more, it probably wants a PG-13 film that isn't so heavy it would scare off the teenagers and young adults who drive so much of the ticket sales these days.

But don't count "Bioshock" out. As Fleming reported, it's not at all unprecedented for movies to be put on hold and then go back into production with a new budget. It's certainly in Universal's financial interests to do so. As I reported when the film deal first got made last year, the studio will have to pay publisher Take-Two substantial penalties if the movie doesn't happen.

"The reason I structured it the way I did is to make sure it gets made," Take-Two chairman Strauss Zelnick, a former movie executive, told me at the time. It looks like his dealmaking savvy is being put to the test.

Two years after taking over the company, Strauss Zelnick and his team finally have put Take-Two's sordid past behind them, with the government anyway, for $3.3 million.

That's how much the "Grand Theft Auto" and "Bioshock" publisher agreed to pay in fines, with $3 million going to the Securities and Exchange Commission and $300,000 to New York authorities.

As part of the settlement, the company is admitting that "certain of its former directors and officers engaged in certain illegal behaviors related to the historical granting of stock options." Essentially, the guys who used to run the place backdated stock options so that it appeared they just happened to be granted to executives on day when the stock closed really low, thus making it possible to sell them later at the greatest possible profit. That is of course illegal. And making matters worse, Take-Two hid the practice in its earnings between 1997 and 2003, so that it reported lower costs and higher earnings than were real.

As a result, in February of 2007, Take-Two had to restate its earnings for that time period to the tune of $42.1 million.

That was two weeks after founder and former CEO Ryan Brant (pictured right), who got some of those backdated stock options himself and helped grant them to others, paid $7.3 million in fines for his role in the scheme. And it wasn't even his first penalty. In 2005 he paid about $3.5 million for another illegal business scheme at the company.

But while the feds are done with their investigation, the past still can't totally be forgotten. Take-Two still has outstanding lawsuits from angry shareholders that it will most likely have to settle as well.

It's understandable that investors and the media would be most interested in how "Grand Theft Auto IV" is performing for Take-Two, since it represented about 40% of the entire company's publishing revenue and 23% of its total revenue (which includes distribution via its Jack of All Games subsidiary).

That's why Rockstar's leadership is so handsomely compensated and gets a cut of the profits for its label, as well as ownership of new properties they create, going forward.

But of course Rockstar has other games, none of which have approached "GTA" in success. "Midnight Club: Los Angeles" its latest title, isn't even in the neighborhood around the ballpark (how's that for a metaphor?). Despite solid reviews, figures buried at the bottom of Take-Two's earnings filings with the SEC for the last two quarters reveal it has earned about $80 million in retail sales. That compares to $770 million for "GTA IV."

Some quick math, reveals that "Midnight Club: LA" has sold around 1.3 million units, which works out to an even 10% of what "GTA IV" has done so far. That's certainly not a disaster, but as CEO Ben Feder put it after the previous earnings call, it is "slower than expected." And it gives you a good sense of just how far behind "GTA" "Midnight Club" performs, especially in a recession where the biggest titles are dominating sales. Being Rockstar's second biggest franchise is kind of like being the second biggest online music store behind iTunes.

Take-Two also revealed in yesterday's earnings call that the original "Red Dead Revolver," which is getting a sequel this fall, sold a total of 1.5 million units. That's not a particularly impressive figure -- certainly not the kind of number that would make a company like Activision see a franchise. The fact that it's making a sequel indicates Rockstar is going with its gut that it can significantly on the original.

Back in December when it cut guidance and announced bigger layoffs, Electronic Arts said that weak catalog sales were one of the primary reasons. "Key catalog titles continue to underperform" was listed as one of the main reasons for the earning shortfall.

Last month, when Activision Blizzard announced earnings, the company didn't specifically discuss a decline in catalog sales, but CEO Bobby Kotick did tell me that "titles in the top 10" are what's "capturing the interest of consumers."

It seemed like that's the trend in the games industry during the recession. But maybe it's just the trend at certain publishers. Because Take-Two today has had the exact opposite experience.

"We have been seeing growth in our catalog sales year-over-year," CEO Ben Feder told analysts on a conference call, "including this most recent quarter when catalog sales grew 30%."

"The current phase of this hardware cycle places a greater emphasis on catalog titles," he added.

Everybody agrees that there has been a greater concentration of sales in the top titles. But while everything else is plunging for EA, it seems Take-Two has found the market is more of what Feder called "a barbell... with AAA titles at one end and value at the other."

One other way in which Take-Two is bucking some trends: While most third party publishers struggle to figure out Nintendo's platforms, particularly the Wii, its "Carnival Games" franchise for the two consoles is doing boffo sales. As of Jan. 31, the publisher has shipped four million units of the Wii version, which launched in August of 2007, the DS version which launched last July, and "Carnival Games: Mini-Golf" for the Wii, which sent on sale in October. Two million of those have come since August 1, indicating the games were pretty big holiday sellers.

But despite those positive signs, Take-Two is still struggling like so many publishers. While revenue rose 7% to $256.8 million from the same quarter last year, net loss ballooned by 33% to $50.4 million on higher costs. And although Take-Two healthily beat its guidance for the current quarter, its maintained its overall guidance for the fiscal year, due in part to some unannounced titles being pushed back and in part, no doubt to the economy. Guidance for the current quarter, which calls for revenue between $200 million and $220 million and  continuing, albeit smaller, losses, seemed to come in lower than investors expected.

As a result, Take-Two stock had a schizophrenic day, surging 14% to $6.85 before the markets closed and earnings were announced in anticipation of good news, then falling back 7% in after-hours trading.

It lost $50.4 million in the quarter

"Grand Theft Auto IV" may not be as big as "The Dark Knight" or "Grand Theft Auto: San Andreas," as I just wrote, but it's still pretty effing big. $750 million in sales in nine months is pretty damned good. And the Rockstar label, which makes most of its money from "GTA," accounts for 40% of parent company Take-Two's revenue. 2K Sports and 2K Games, by contrast, both of which release substantially more games, account for 25%.

That's why Take-Two signed a groundbreaking deal with Rockstar's top talent, primarily co-founders Sam and Dan Houser and Rockstar North president Leslie Benzes, in December that included ownership of future games and profit sharing.

In its earnings today, Take-Two detailed the first payments to "certain employees of Rockstar Games," (the Housers, Benzies, and possibly a few others): 2.85 million shares of stock. Or approximately $20 million at today's price.

Not a bad start. And of course that's separate from any payments the Rockstar leaders will be getting in profit sharing. The plan is in full effect this quarter and included new downloadable title "The Lost and Damned," which, Take-Two says, is already profitable (though they declined to say how many copies have been downloaded from Xbox Live).

Remember when "Grand Theft Auto IV" grossed over $500 million in its opening week last April and Take-Two bragged that it was the largest launch for any entertainment product? Well, they were totally right, but as new data released by Take-Two today underlines, it sure didn't have much staying power.

On its earnings call, the publisher said the "Grand Theft Auto" franchise earned another $60 million in the quarter ending Jan. 31, bringing the total since "IV" was released to $770 million. Given that the new game has shipped over 13 million units, it's safe to assume that the vast majority of that money is for it and not catalog versions. $750 million is a safe estimate.

That means "GTA IV" made about two-thirds of its revenue-to-date in the first week alone. Talk about front-loaded. By contrast, the year's biggest movie, "The Dark Knight," made about 45% of its total domestic gross in its first week (worldwide gross is really tricky since it opened in different countries on different dates). Even assuming "GTA IV" has some life left in it, it will have done well more than half its sales in the first week.

Let this also put to rest the old canard that video games may make more money than movies. Sure they can open bigger, since a lot of video game fans like to get their hands on a big title as soon as it's available. But "GTA IV" has made about $750 million to date and might get into the $800 millions. "The Dark Knight," by contrast, sold over $1 billion worth of tickets. And that's just box office. There's also DVD sales and rentals, cable, pay-per-view, video-on-demand, and eventually a broadcast airing. Add it all together and you've got well over $1.5 billion, or double "GTA IV."

Also worth noting: "Grand Theft Auto: San Andreas" is the biggest franchise installment to date, selling 21.5 million units. "GTA IV" is looking extremely unlikely to surpass that figure (in fact, I'm ready to state unequivocally it's not going to happen). That's perhaps no surprise, given that the Xbox 360 and Playstation 3 currently have an install base about half the size of the Playstation 2 a year after "San Andreas" launched (not to mention that the latter game eventually came out for PC and Xbox). Then again, "GTA IV" is estimated to have cost $100 million to make, substantially more than "San Andreas." Higher costs and lower sales = less profits

In the category of news that informs us something wasn't a complete disaster comes this announcement from Microsoft:

Well yea, given that it's the most expensive DLC ever available on Xbox Live, and it comes from one of the biggest modern franchises in the videogame industry, it had better have broken the record. If it hadn't, something would have been very, very wrong for Rockstar and Microsoft.

Note that Microsoft only mentioned revenue, however, and not the actual number of units. We can safely assume from that that it didn't break the record for the most number of paid downloads by a piece of DLC, which appears to have been set by "Call of Duty 4's" Variety map pack last spring.

Without knowing how many copies of "Lost and Damned" Rockstar sold, we don't know anything really interesting. Like how many of the more than 10 million people who have bought copies of the game (the vast majority in North America and Europe and thus able to acces the DLC) bought "Lost and Damned?" And how much progress did Microsoft make on earning back the $50 million advance it gave Rockstar parent Take-Two for exclusive rights to "Lost and Damned" and the upcoming second "GTA IV" DLC.

All we know so far is that the "Lost and Damned" didn't launch way below everyone's expectations.

Here's an interesting statistic from Take-Two's earnings today that I almost forgot to mention.

"Grand Theft Auto IV," along with catalog sales of other "GTA" titles, has generated $710 million in net revenues for Take-Two this past fiscal year, which ended Oct. 31. Take out the tiny amount "GTA" catalog sales probably represents, and we're talking about $700 million in six months (though only $40 million of that came last quarter, meaning "GTA IV" did the vast majority of its sales in the first two months). By the time the current quarter is done and the game spends some time in catalog, it could be approaching $800 million or more.

The year's biggest movie, "The Dark Knight," has grossed about $1 billion. But that's gross. Net box office revenue to Warner Bros. and Legendary Pictures was probably half that. Now granted, by the time "The Dark Knight" cycles through DVD, pay TV, cable, etc. it will certainly make more money than "GTA IV." But the fact that they're even close is remarkable. "Grand Theft Auto" is one lucrative media franchise.

No wonder Strauss Zelnick felt he had to dish out an unprecedent deal to keep the Housers and other top talent in-house. Would you want to risk messing with that formula? Especially when that one brand, and primarily that one game, represented 60% of publishing revenue for an entire year?

Following today's announcement of a new contract for the brothers Houser, Leslie Benzes, and other top Rockstar folks with Take-Two, I spoke to the publisher's chairman Strauss Zelnick about the deal. If you don't yet know the full details about the pact, as well as Take-Two's weak guidance that sent its stock tumbling, read it here.

If you already know, you may enjoy some excerpts from my interview with Strauss:

Me: It's obvious from the unprecedented structure of this deal that it was ver important for you that the Housers and other top Rockstar folks remain with Take-Two. Why is that? After all you would have retained ownership of the label and the "Grand Theft Auto" brand anyway.

Strauss Zelnick: We've said all along that one of our key strategic elements is being the most creative company in the business and that means aligning with the most talented and creative folks in the business. The folks who are at the top of the Rockstar label fit that bill to a tee.

Me: It seems like they were more valuable to you than any other videogame publisher, since they're so associated with "GTA." You have experience in the film and music businesses and you know there sometimes the talent is bigger than the product, but that's not really true here, right?

SZ: You’re right it is in may instances involving videogames to distinguish top creative teams from the IP they create. In the movie business it's rather typical to do a sequel with different actors or even a different director.

In the interactive entertainment business it's more typical that creative teams continue with certain properties. But in this case it's way more than "GTA." This is a team that has been responsible for the top selling IP in the business... Rockstar Games has a unique successful creative culture. It was terribly important for us to be in business with them and we’re proud able to align the interests of our colleagues with our company and stockholders.

Me: Take-Two never really revealed the details of their last deal. Is this new contract fundamentally different, or is it basically the same type of terms, but just bigger and better?

SZ: Profit sharing is a new structure and is terribly different from what they had before.

Me: With Sam, Dan, Leslie and other folks at Rockstar forming their own company and Take-Two funding and distributing those games but them owning the IP, is that where they'll put all their new creative energy? Will they still create new properties for Rockstar, which Take-Two would own, as well?

SZ: The arrangement is basically a continuation of the prior arrangement. The bulk of their acitivities will be focused on IP that has been and will be created by Rockstar.

In addition, there will be the opportunity to create incremental properties owned by those individuals on an entrepreneurial basis and published exclusively by take two.

Me: So they will create new games for Rocktar as well?

SZ: Yes, their primary activity is unchanged. They will be creating IP owned by Rockstar, which is in turn owned by Take Two. There is also the opportunity to create some IP on their own.

Me: The announcement says it includes "several other key members" of Rockstar's creative team beyond Sam, Dan, and Leslie. Who are they?

SZ: We're only talking about the three principals today.

Me: On a related topic, in the spring you were negotiating a new contract with ["Bioshock" creative director] Ken Levine. I assume that must be done, since he's working for you on a new project.

SZ: We haven’t said anything about that. But we're thrilled to be in business with people like Ken, ["Civilization" creator] Sid Meier, [sports studio president] Greg Thomas.

[Note: I've updated this post by essentially replacing it with the article I just finished writing for Variety, which I think captures all the important info much better. I'll be following this up with a Q-and-A with Take-Two chairman Strauss Zelnick about the deal very soon.]

The creators of “Grand Theft Auto” are sticking with Take-Two in an unprecedented deal that includes a cut of the profits and full ownership of future games.

Ending months of speculation about whether top talent at Rockstar Games, the Take-Two label that makes the ultra successful “GTA” and other franchises, would remain when their contract expires in February, the publisher has signed them to a new three year contract through 2012.

Deal includes Rockstar co-founders Sam and Dan Houser and Leslie Benzes, president of the Scotland development studio that makes most “GTA” games.

Though Wall Street welcomed the news, Take-Two stock plunged 19% in after-hours trading Wednesday as the publisher unveiled lower than expected guidance for 2009 due to caution over the weakening economy.

Compensation under the new contract comes primarily through profit sharing for the Rockstar label, which contributes nearly half of Take-Two’s revenue. Though videogame creators typically receive royalties based on sales of specific titles they make, Rockstar talent is believed to be the first to get a major stake in overall profits.

Pact also includes an equity grant of Take-Two stock that will vest over three years.

Most significant part of the deal, however, is that the Housers, Benzies, and other Rockstar team members will establish an independent company to develop new videogames that they will fully own. Take-Two has agreed to fund development in exchange for exclusive distribution rights.

Intellectual property ownership by creators is rare in the videogame industry and unprecedented for those who are employees of major publishers.

In an interview, Take-Two chairman Strauss Zelnick said the Housers and Benzies will spend most of their time working at Rockstar and continue to create games for that label, along with sequels to existing franchises, while also working on new games for their independent company.

“This is a team that has been responsible for the top-selling IP in the business and has a uniquely successful creative culture,” Zelnick told Daily Variety. “It’s terribly important for us to be in business together with them and we’re proud to align the interest of our colleagues with our company and stockholders.”

April release “Grand Theft Auto IV” has already sold more than 10 million units worldwide. In addition, Take-Two has high hopes for a downloadable expansion pack to the game that will be released in February and a spin-off for the Nintendo DS coming out in March.

However, Rockstar games have been selling modestly so far this fall as the videogame business has slowed down along with the economy.

On a conference call with analysts, Take-Two CEO Ben Feder said “GTA IV” has performed only “OK” lading up to the holidays. He characterized initial sales for Rockstar’s car racing game “Midnight Club: Los Angeles,” which was released in October, as “slower than expected.”

Take-Two’s overall performance for the quarter ending October 31 was in line with previous guidance, as the publisher lost $15 million on $323.4 million in revenue. That’s up from a $7.1 million loss on $292.6 million in revenue last year and was driven primarily by “GTA IV,” “NBA 2K9,” and the company’s successful “Carnival Games” family franchise.

However, Wall Street was disappointed by Take-Two’s conservative guidance for the current quarter and the fiscal year ending next October. Though the company always suffers in the year following a major “Grand Theft Auto” release, investors didn’t expect revenue to dip from over $1.5 billion to between $1.1 billion and $1.25 billion, as Take-Two now says it will due to the ongoing recession, which has already impacted competitors including Electronic Arts.

“It’s important to remember that consumers of interactive entertainment are as effected by the economy as other shoppers,” Zelnick noted. “We’ve taken a hard look at our forecast for the next 12 months and we’ve significantly reduced our expectations.”

Take-Two stock closed up a fraction at $12.07 Wednesday before earnings and the Rockstar deal were announced.

You probably all know that EA just reported dismal earnings, announcing it will lay off six percent of its staff in the face of rising costs and the economic slowdown. CEO John Riccitiello cited a "slow down at retail in October" and CFO Eric Brown said "retail traffic is down in general." All signs are that while the videogame biz continues to grow strongly and is recession resistant, it's definitely not recession proof. Which is bad news for those who thought videogames are a totally safe place to ride out the economic storm.

For all the details on EA's disappointing earnings, which sent shares tumbling 14% in after-hours trading, check out my story here.

One interesting footnote came in the list of EA's rising expenses. Marketing costs were up 20% last quarter from a year ago and R&D shot up 44%. But there was also $21 million worth of spending in a category that didn't even exist last year: "Certain abandoned acquisition-related costs."

Translation: EA spent a bunch of money on lawyers and financial advisors in its failed pursuit of Take-Two Interactive. Remember when Riccitiello said that the seven month process of trying and failing and trying and failing to buy "Grand Theft Auto" publisher Take-Two was "a waste of ink?" Apparently it was a waste of something else too.

If nothing else, Take-Two's announcement that it is staying independent and not getting acquired by anyone (at least for a while) is a good rebuke to critics who said that executive chairman Strauss Zelnick and his management team were setting themselves up for a nice golden parachute by selling off the company.

Last winter it was revealed that ZelnickMedia, the management firm that took over Take-Two last year that includes Zelnick (natch), CEO Ben Feder and exec VP Karl Slatoff got a new pay package admist private, undisclosed negotiations with EA. Once EA took the talks public, analysts noticed that the company got a chunk of shares that were supposed to vest over time, but half of which would vest immediately if the company was acquired. The somewhat cynical (or is that realistic?) noted that Zelnick was refusing to negotiate with EA until after April 30, which was soon after the publisher's annual meeting at which the pay package was to be approved.

Zelnick maintained that the increased compensation was merited because he had gone from being a part-time chairman to full-time executive chairman and that performance had improved significantly. HE said he didn't want to negotiate with EA until after "Grand Theft Auto IV" was released.

Now that Zelnick has rejected a $2 billion bid that some investors were saying he should take, and rebuffed interest from all other comers (who we can assume weren't willing to bid much more), it's certainly seems that accusations he was looking to sell the company and cash out were dead wrong.

However, since rejecting the EA deal, Take-Two stock has plunged 32% to $14.86. Now it's even lower than when Zelnick took over the "troubled" company in March 2007 (admittedly amidst a generally terrible stock market). So the question is no longer whether he's just enriching himself. The question is whether he can actually improve things for investors.

Take-Two shares plunged 24% today after EA declined to make a new bid after reviewing the "Grand Theft Auto" publisher's NDA presentation. Apparently nothing impressed them enough to think the company was worth the $2 billion that management and the vast majority of shareholders rejected.

Apparently at least some of those shareholders thought they might get even more than the $25.74 EA was offering and found out the hard way that wasn't happening. That's why the stock plunged 24% Monday to $16.57. Ever since the EA bid went public in mid-February, it had been hovering in the mid-20s. (And yes,  almost all stocks were down Monday amidst the Wall Street chaos, but other videogame publishers like Activision Blizzard and THQ fell more like 5%).

So now Strauss Zelnick, Ben Feder et all need to do one of two things:

-Find another company to pay more than $2 billion, Given the unique synergies that existed between EA Sports and 2K Sports, most analysts seem to think that's unlikely. Although Take-Two says talks are ongoing with various undisclosed interested parties.

-Bring Take-Two stock back up to more than $25.74 through organic growth. That means it has to have a very strong 2009 with no "Grand Theft Auto" games on the schedule (save for the second downloadable episode tied to "GTA IV.") Will "Bioshock 2" match or exceed the success of the first one? Can 2K Play continue and extend "Carnival Games'" initial success in the casual category? Can the perenially money-losing 2K Sports gets its act together? Will new properties like "Borderlands" be a hit? The answer to most of those questions will probably have to be yes to justify Strauss' blow-off of EA.

Not to let EA off the hook, of course, since it needs to either find another good acquisition target or find a way to use $2 billion to developer more of those internal non-sports franchises that it is sorely lacking. Speaking to senion VP of corporat strategy Owen Mahoney yesterday, he told me EA will "continue to be an acquirer around two strategic goals: developing a very strong core pipeline of games and expanding our direct-to-consumer and online strategy."

More details in tomorrow's Daily Variety.

Chart from TheStreet.com is Take-Two's six-month trading. Just to see how severe today's drop was.

More than half a year of corporate drama is over. Apparently EA didn't learn anything new in the past month of private talks that led it to raise its repeatedly rejected $2 billion bid. Story still developing. Basic details are right here.

Most of the attention on Take-Two this year has understandably been on the takeover drama with Electronic Arts and the record breaking launch of "Grand Theft Auto IV."

But in looking over its earnings yesterday, it struck me that the success of "Carnival Games" in the past year really has been impressive and, more importantly, overlooked. The original game for the Wii sold over a million units from last August through March, which is pretty good for any new IP, but especially a casual one on a single console. It and the new version for DS, which launched in early July, sold another million through the end of that month. (I should note that Take-Two actually said it "shipped" over two million copies, meaning they haven't all sold through at retail yet.)

Given the trouble that most third party publishers have had in creating successful titles for the Wii (save, of course, for "Guitar Hero"), this is a pretty good achievement in a year. Not to mention creating a new casual franchise, which lots of companies with a background in more hard core titles are talking about but haven't accomplished yet. Even the much heralded (and, I'll venture to say even though I haven't played "Carnival Games," much better) "Boom Blox" hasn't sold close to a million units last we heard.

Even if most of us in the gaming press aren't taking notice, since this is not the kind of game we typically play, it seems other publishers are. It's probably no coincidence that Warner Bros. recently announced a Guinness World Records game, while Brash is doing a game based on the Six Flags theme parks. Both are for the Wii and DS, but not 360 or PS3, of course.

Of course, I can't totally forget about "Grand Theft Auto IV," which has gone from 8.5 million units sold as of May 31 to over 10 million as of July 31. With a PC version and new downloadable content coming for the holiday season, I'd bet this monster still has a few million units left in it.

No word from Take-Two, however, on how July's "Civilization: Revolution" sold. Which means it probably didn't come out of the game incredibly strong.

Looks like we won't be hearing from EA or Take-Two for a while about their never-ending tango.

In an SEC filing today (per Reuters), Electronic Arts said it has signed a confidentiality agreement that "prohibit[s] each of EA and Take-Two from, among other things, publicly disclosing the status or terms of any discussions or negotiations... unless EA or Take-Two notifies the other that it is terminating discussions.

"As a result," it continues, "EA does not intend to make any further announcements... unless and until discussions between EA and Take-Two have been terminated or such parties have entered into a transaction."

No more endless tender offer extensions? No more accusations from John Riccitiello and Jeff Brown that Take-Two's management isn't really committed to the company and that EA could sell its games better? No more endlessly repetitive statements from Strauss Zelnick that his company is worth more than EA is bidding, hyping (with plenty of justification) the huge sales of "GTA IV" and glossing over the big problems with its sports biz? For the sake of us journalists, I hope these talks wrap up soon one way or another. Otherwise the rest of 2008 will be so much more boring.
 

Apologies for the slow posting this week as I'm preparing for a big family wedding on Saturday. Meanwhiles, here's the big news I'm behind on posting:

-I reported back in July that there would likely be a price for the Xbox 360 this fall. Then earlier this month, ArsTechnica reported that the price cut would likely be to $200 for the Arcade, $300 for the standard (formerly known as "pro"), and $400 for the elite. I said that sounded about right for me. Now Joystiq has a Radio Shack flyer that confirms those new prices are coming September 7. Which is good timing, given that temporary 360 exclusive "Rock Band 2" comes out later in the month. Given the slowdown in sales for the 360 this year, it seems like a price cut is necessary. Now Microsoft is in the much stronger position of having one version even cheaper than the Wii and it's highest quality version the same price as the PS3, while its standard version is nicely positioned between the two.

-NPD, working with Chart-Track and Enterbrain, makes its data a bit more interesting by providing year-to-date sales for the top 5 games in the U.S., UK and Japan. Not clear whether they will provide this quasi-global data on a regular basis, though. Data is below. No surprise that "GTA IV" is #1, though NPD's 6.3 million is still far below Take-Two's self-reported total of 8.5 million as of May 31, revealing the limits of NPD's incomplete reporting (since Take-Two is a public company and we can probably assume we're being honest. It's also notable that "Wii Fit" is the one game to actually sell even better in Japan than the U.S. "Guitar Hero III," meanwhile has virtually no sales in Japan. I guess the Japanese like funky peripherals that let them improve their balance, but not become a rock star.

-Jamil Moledina, who has led the Game Developers Conference for five years and helped it grow into an event that's now arguably more important to the industry than E3, has left his job with the ever mysterious intention to "pursue other interests." Meggan Scavio, who already had the job as "event director" of GDC, is now in charge.

-The FTC has, perhaps unsurprisingly, given the OK to EA acquiring Take-Two. Now the only question is whether their upcoming private talks will lead to a deal.

I'll be back on Monday, with some fresh reporting coming next week.

Now that Electronic Arts has ended its hostile (and unwelcome by both management and most shareholders) bid for Take-Two Interactive and entered private negotiations (Daily Variety story here), there's one big question: Who has hand?

Specifically, did EA realize it was never going to convince EA shareholders to take $2 billion, or something close to it, so long as Strauss Zelnick and the rest of the "Grand Theft Auto" publisher's management opposed the deal? Or has Take-Two leadership realized it needs to make a deal soon and would rather do so in private negotiations, where it can take credit, than by losing a public battle if EA upped its bid a little more?

If EA ends up making a deal with Zelnick et al for just a little more than the $25.74 it has thus far offered, I suppose we'll know it had hand. If it's a radically different deal, or nothing happens and Take-Two either goes with another partner or sticks it out as an independent, then it will be clear going back into private negotiations was a last ditch attempt by EA.

There was only one real piece of news (as in something interesting that we didn't expect) at Nintendo's press conference this morning, but it was a doozy: Rockstar is making a new "Grand Theft Auto" game exclusively for the DS called "Grand Theft Auto: Chinatown Wars."

It's the first time the uber-popular "GTA" franchise has come to a Nintendo system since 2004's "Grand Theft Auto Advance" for the Game Boy and it's a coming together many of us thought would never happen again, since the Nintendo audience tends to skew younger than Rockstar's and its consoles don't have the processing power that "GTA 4" demanded.

But there's no ignoring the massive install base of the DS, which Nintendo says will hit nearly 100 million by March. Sure, lots of kids and older players who aren't into "GTA" have a DS. But pretty much every core gamer has one as well these days. So there's no reason Rockstar make an M-rated game and target them.

Parent company Take-Two Interactive has got to be excited. It's coming off the huge "Grand Theft Auto IV" launch and has the first downloadable content promises for the end of this year. Then there's yet another piece of "GTA" content coming next winter -- and it's for a platform with a bigger install base than the Playstation 3 and Xbox 360 combined. That means it's at least a year until Take-Two has to worry about not having any new "GTA" content on the immediate horizon, which will please Strauss Zelnick and his investors.

Details thus far are light, though the game is coming out this Winter. Rockstar promises it's a wholly original story in which "players will navigate their way through the streets as they uncover the truth behind an epic tale of crime and corruption within the Triad crime syndicate." Despite the DS's lack of  power compared to even the PSP, Rockstar says "Chinatown Wars" will have the same "unprecedented amount of depth" that "GTA" games are known for and will also take full advantage of the handheld console's touch screen.

Game is being developed by Rockstar Leeds, which also made the PSP spin-offs "Vice City Stories" and "Liberty City Stories."

(This story previously said "Chinatown Wars" will be the first "GTA" game ever on a Nintendo console. As a few commenters pointed out, that was wrong. That was my bad for blogging in a rush during E3 madness and not doing enough research.)

It's kinda fun for gamers to see our industry gossip rise to the level of New York Post gossip, which on Monday ran a story about Ken Levine's re-negotiation with Take-Two.

The actual reporting in the Post story is virtually the same as in my post about "Bioshock" creative director Levine's re-negotiation from over three weeks ago: He's close to finishing a delicate re-negotiation between his reps at CAA and Take-Two that would give him greater creative freedom and more compensation for his work.

The Post is a little more specific in saying he would earn points (or royalties) not only on games he develops, but also on "Bioshock" sequels.

The article states that "The video game industry has been moving toward a points-based compensation structure for developers of about 1 percent to 3 percent of a game's total sales." That seems a little weird to me, since of course development studios have been earning royalties on game sales for eons. Though such contracts with individuals are, of course, rare -- at least directly with the publisher. Sometimes a top creative person may have some kind of incentive plan like that with the studio where they work.

The fact that Levine himself may earn royalties on "Bioshock" sequels, even if he doesn't work on them very directly, is interesting. Given how rare it is for videogame talent to get money for games they don't work on too directly (outside of someone like Will Wright or Sid Meier, perhaps), that would be a pretty big deal and is, I suspect, one of the main issues in the re-negotiation.

Also of note: Infinity Ward last week revealed that it has re-upped its deal with Activision. Which I don't fully understand since Activision acquired 100% of Infinity Ward back in 2003. But just as Bungie had the leverage to leave Microsoft last year, Infinity Ward was surely in a very strong position to get the kind of financial deal and creative freedom it wanted from Activision after "Call of Duty 4" sold 10 million-plus units. Depending on the status of various folks' employment contracts, they could have simply left. Or they could have just made life difficult for Bobby Kotick, which he can't afford.

So Infinity Ward now has a "renegotiated deal" that lets it work on its "future project" (which we can assume is next year's "Call of Duty") as well as "the possibility of a unique new IP that [Infinity Ward will] have complete control over."

That last phrase, "complete control," is especially interesting. That seems to mean Activision wouldn't have the option to, say, assign a sequel to another developer (nothing personal, Treyarch). And probably a much bigger financial success in the property.

Rather than individually respond to the 100-plus comments and several e-mails, I figured I'd just make a few points here that hopefully address some of the points that people who disagreed with me made.

But first, a general point. Some of the disagreements seem to stem from what I'd say is the difference between the general concept of "colonization" and the specific concept of "colonialism." They're pretty distinct as the linked wikipedia references describe. (and let's please not make this a debate about the validity of wikipedia)

Now yes, the game's subtitle is "Colonization." But it does not appear to just be about (quoting Wikipedia) "whenever any one or more species populates a new area." If it involved made-up countries colonizing a made-up land, I certainly wouldn't care.

Because it involves European nations and the "New World," it's clearly about colonization from the roughly 1400s to mid-20th century, which is, as the wikipedia entry says, known as "colonialism." And what's colonialism? "It is essentially a system of direct political, economic and cultural intervention and hegemony by a powerful country in a weaker one... Colonialism was often based on the ethnocentric belief that the morals and values of the colonizer were superior to those of the colonized."

So, if you don't agree with me on that distinction, we probably won't get too far. But for those who at least think there's something to where I'm coming from, I"ll deal with a few specific concerns. The italicized statements are general summaries of points that numerous people made, except where I use quotes. Hopefully they don't appear to be straw men because I tried really hard to be fair.

-It really happened in history! We can't make games about history anymore?

Of course I'm not saying you can't make games about real historical events, even very unpleasant ones. But if you're going to base a game on a series of real historical events, don't you have a responsibility to deal with the major issues of that history? Colonization involved a lot of racism and exploitation and even genocide. "Civ IV: Colonization" puts you in the role of the people doing the colonizing and, unless I'm crazy and every description of the game is off, motives you to "colonize" successfully in order to win. In the year 2008, we shouldn't be uncritically celebrating successful colonization of the "new world" by European nations. If you want to deal with the reality of colonization, that's cool. But it seems to me the bare minimum to achieve that would be including the option to look at events -- or in the case of a game, play -- as the people being colonized. That's not an option here.

-Lots of battle strategy games let you do terrible things

That's great, because real life war involves doing terrible things. But colonization was a very specific historical phenomenom perpetrated (in the modern history this game portrays) by one group of people against others. War has involved pretty much every kind of people fighting every other kind of people in every kind of way. It sucks, but it's reality (perhaps even human nature). Colonization is not just this thing that happens. Especially since the game specifically chooses to show Europeans conquering the "New World," thus firmly putting it in the context of European colonialism, not just a vague concept of people from one nation moving somewhere else.

-Why aren't you outraged that you can play as Nazis in World War II games? Or the South in "Sid Meier's Gettysburg?"

First of all, the fact that those games let you play as both sides is inherently better than the one sided "Colonization," as mentioned above. Second, that's not the correct comparison. The correct comparison, as I said, would be a game where you can only fight as the Confederacy and you're encouraged to preserve the South's values and traditions and not deal with the fact that the main cause you're fighting to is to preserve slavery. Even if you want to simulate it just for the fact of wondering how and whether the South could have won, you should acknowledge somewhere in such a game the reality of what the South was fighting for. Similarly, a game like this should explicitly acknowledge that colonization, as practiced by Europeans in the modern age, was an inherently morally disturbing practice.

-You didn't even play the original Colonization.

True, which is why I focused on my criticism on the new one

-You're just criticizing a marketing blurb.

I'm basing my analysis on that marketing blurb and the description of the game on Firaxis's site. I'm sure both are simplifications of the game. But unless they're inaccurate, I think it's valid to discuss what the game appears to be. Trust me, if there was a movie called "Colonization" described by the makers as portraying "a European nation on their quest to conquer and rule the New World," people would be talking about it and raising concerns. And of course I plan to demo the game at E3 and play it when it comes out and say something more definitive one way or the other based on that.

-"Is this author a member of Critical Mass? Is he a freegan or a vegan? Does he wear v-neck t-shirts without anything over them? Does he have nautical tattoos or swallows? Has he ever kissed members of the same sex not due to any sexual desire or rational urge but for a complete and desperate desire to prove how "progressive" he is? Does he enjoy the Blood Brothers? Because he certainly comes across as a typical indiedolt pushing a shallow view out as if he's a deep thinker."

I had to quote that one at length because it's my favorite comment by far. And yes, sadly, I do sometimes wear v-neck t-shirts without anything over them. Please don't judge me too harshly.

I invited someone from 2K or Firaxis to respond to my post about the problems I have with "Civilization IV: Colonization" and I just received this from Steve Martin, president of developer Firaxis Games:

For seventeen years the Civilization series has given people the opportunity to create their own history of the world. Colonization deals with a specific time in global history, and treats the events of that time with respect and care. As with all previous versions of Civilization, the game does not endorse any particular position or strategy - players can and should make their own moral judgments. Firaxis keeps the player at the center of the game providing them with interesting choices and decisions to make, which has proven to be a fun experience for millions of people around the world.

I literally exclaimed "holy sh*t" out loud when I was reading an e-mail this morning listing the "Games for Windows" coming out this year and I came across this:

“Sid Meier’s Civilization IV: Colonization™” (2K Games). In “Sid Meier’s Civilization IV: Colonization,” players lead one of four European nations on a quest to conquer and rule the New World. Players will be challenged to guide their people from the oppressive motherland, discover the New World, and negotiate, trade and fight with both the natives and other nations as they acquire power and fight for freedom and independence. As a complete reimagining of the 1994 classic, “Colonization” is a total conversion of “Civilization IV^®” that combines the latter’s  addictive “just one more turn” gameplay with all-new graphics and features that add more depth to the franchise. (“Sid Meier’s Civilization IV: Colonization” does not require the original “Civilization IV” product in order to be played.)

Now yes, a simple google search tells me that the game was actually announced two weeks ago and I missed that, so forgive me my tardiness...

But goddamit, am I the only one who think it's morally disturbing to make a game that celebrates COLONIZATION? It's ironic, actually, because just a few months ago a friend sent me a link to some information about the original "Colonization" game from 1994 (pictured left) that this one updates. At first, I thought it had to be a joke, but sure enough, it was real. However, I dismissed it as a relic from a time when neither developers nor players took videogames seriously as media with moral implications.

But the idea that 2K and Firaxis and Sid Meier himself would make and release a game in the year 2008 that is not only about colonization, but celebrates it by having the player control the people doing the colonizing is truly mind boggling.

(A huge caveat up front: Of course, the game hasn't come out yet. So this post is based entirely on that marketing blurb and the description on the website. If the game turns out to be something entirely different than it appears to be, that's fantastic and I'll withdraw everything in here.)

Remember all the debate when Newsweek's N'Gai Croal said of the "Resident Evil 5" trailer with the African zombies that "Even if you are familiar with the franchise, if you are familiar with those images and their historical weight, you look at it and say, 'Man, that’s kind of messed up.'" Well, I agreed with N'Gai on that issue, but in my opinion, a game about colonization is about 100 times more messed up.

And yes, while the description says that you "fight with... the natives," it also claims there is "improved diplomacy." It's entirely possible, even likely, that you can finish the game without killing any Native Americans. And I'm sure there are no options to give the Native Americans smallpox or send them on a death march. But that's irrelevant. A game about colonization that's entirely about controlling the settlers can either force the player to do horrific things or let him avoid doing it and whitewash some of the worst events of human history. Either option is offensive.

Forgive me if this sounds like an obnoxious history lesson, but the lack of outrage over the game does make me feel like I have to explain myself... Throughout history, colonization regularly involved stealing, killing, abuse, deceit, and the exploitation or decimation of native people. Anybody with a shred of a moral concience who studies the history will be appalled. Whether it was British rule of India or slavery in Africa or Aboriginal children kidnapped and taken to Christian schools in Australia or the dislocation of Native Americans in the U.S., there were no positive colonization experiences.

Even more disturbing, though, is that colonization was and is a racist process. The colonizing people ALWAYS thought they were superior by dint of their ethnicity or nationality (often connected to their religious beliefs) and that this somehow justified taking land from native people, exploiting their resources, or simply "educating" them. In modern history, of course, this was always European racism playing itself out as they colonized other parts of the world. But this isn't a "white=bad" argument. It's a "colonization=racism=bad" argument.

So now, in the year 2008, we have a videogame being released by a major public company (2K is part of Take-Two Interactive) in which "players lead one of four European nations on a quest to conquer and rule the New World." The obvious comparison that spring to my mind would be if somebody released a game called "Civilization IV: Confederacy," in which players have to "lead a proud people to defend their values and traditions against their oppressive neighbors to the North." Sure the game might not require you to own and abuse your slaves. But defending the Confederacy is inherently about defending the racist practice of slavery. And "conquer[ing] and rul[ing] the New World" is inherently about engaging in the racist practice of exploiting and abusing native people. (And I'm not even getting into the offensiveness of using uncritically using the phrase "New World" in the marketing material.)

I'm sure you can make a non-offensive videogame about colonization. But it would have to in some way show things from the perspective of the people being colonized and it would have to deal with all the horrible practices that colonization has involved in the world's history. "Civilization IV: Colonization," does not appear to be that game.

And yes, before anyone brings it up, I believe in the First Amendment. Of course 2K has the right to release it. Nobody should stop them from doing so. But I think personally think they shouldn't release it, if it's at all what it appears to be based on the early marketing. And I'm hoping a lot of people agree with me and will say so publicly.

As Leigh Alexander aptly put it in Kotaku on Monday, "It must also be our responsibility to uphold a willingness to examine games, to discuss them civilly, to be willing to see what we're saying about ourselves through play." If there was a major movie coming out that uncritically told the story of Europeans colonizing America, there would be a major furor, and rightfully so. Why should it be any different with a videogame?

(map of European colonization from the 18th century taken from here.)

I'm back and catching up. Here's some of the big videogame news last week that I missed...

-Mario Puzo's grandson is suing Paramount to get a cut of the profits from the "Godfather" game.

-"Underworld" director Len Wiseman is now attached to direct "Gears of War" at New Line. This is good news, at least for those who want to see the "Gears" movie happen, since once New Line was downsized and folded into Warner Bros, there was reason to worry whether the project would survive. Apparently it is and by attaching a fairly big director, the new New Line is signalling it's still a priority.

-After the rather dismal showing exhibitor- and fan-wise at last year's E for All, IDG had some good news by announcing that Microsoft has signed on. With "Gears of War 2" coming this holiday season, that'll be at least one really big draw for gamers. And it's probably the reason why the show's October timing works well for Microsoft.

-EA's bid for Take-Two got extended for a fourth time and the latter company has finally reached a deal to turn over all the material the FTC wants to investigate the proposed agreement. And Take-Two chairman Strauss Zelnick continues to be uninterested. What exactly does EA think is the endgame in all this? Fascinating.

-Longtime EALA chief Neil Young, who has recently been heading up the mysterious new Blueprint group focused on developing new content in new ways, has left EA to work at his own company. I had been hearing he was unhappy and trying to land a new job for the past few months. Company vet Louis Castle is taking over Blueprint, which is in charge of the Steven Spielberg games, amongst other things.

Have you been wondering why "Bioshock" creative guru and 2K Boston chief Ken Levine has been strangely absent from the press recently? Why "Bioshock 2" is being made at a separate studio and all Take-Two has said is that he "will be involved?" Why he wasn't available to talk on the record about the "Bioshock" movie? Why nobody knows what's up with him?

As several sources have confirmed for me, the answer is simple: Levine is re-negotiating his contract. Coming off the big commercial success (2.2 million units sold) and even bigger critical success of the game, Levine has become one of the very few recognizable and respected names in the videogame development community and he's trying to use that to get the creative freedom and compensation he feels he deserves. Take-Two, meanwhile, obviously wants to keep the guy on board, but is probably wary both of not spending too much money and also not setting a precedent that it will regret having to follow with the creative director of every successful game going forward.

I don't know the exact status of negotiations, except that they've been going on for a couple of months at least and don't look to be over in the very near future. I do know that Hollywood powerhouse agency CAA is representing Levine and that both Take-Two chairman Strauss Zelnick and CEO Ben Feder have been directly involved.

As everything from Tomonobu Itagaki leaving Team Ninja and Tecmo to Bungie splitting with Microsoft demonstrate, developers are itching for more recognition, compensation, and independence. If Ken Levine does land a big contract at Take-Two, or elsewhere, I suspect it'll be a harbinger of more such deals to come for the biggest talent in the videogame biz.

CAA and Take-Two both declined to comment.

Take-Two's earnings for the quarter ended April 30 were undoubtedly great, though as I noted, it's still unclear whether the company's making a lot of progress beyond its inability to make money in quarters when it doesn't have a new "Grand Theft Auto" game.

Pacific Crest analyst Evan Wilson thinks the answer is a resounding "no." As this GameSpot report details, Wilson released a note in the wake of Take-Two's earnings noting that Take-Two has made little to no progress on the five key fronts Chairman Strauss Zelnick promised to address when he took over last year. In particular:

-Operating expenses are rising

-The sports division is still not profitable

-Release dates are not more reliable ("GTA IV," Civilization: Revolutions," "Mafia II," and other games have been delayed)

Wilson does grant that Take-Two has made progress in spinning off some non-core businesses and resolving its many legal issues.

"It is starting to appear that the company is back to where it started," wrote Wilson, who, it should be noted, is a supporter of EA's takeover bid. "After the success of Grand Theft Auto [IV], it will be looking at a bloated cost infrastructure relative to its revenue opportunity, which will likely be further muted by game delays and underperformance."

To a certain extent, these points are undebatable. Though the overall conclusion seems a bit harsh given that Take-Two has a new hit franchise on its hands in "Bioshock" and made a solid entry into the casual business with "Carnival Games." And given how much "GTA IV" is supporting the company this year, some delays don't seem that bad to me if they do improve quality and thus sales.

But there's no denying that costs are still high and the sports business just can't find its way into the black, both of which lend credence to the logic of EA's takeover bid, which would consolidate the sports game business and undoubtedly reduce some of Take-Two's fixed costs.

Another detail from Take Two earnings that I had missed: Rockstar has pushed back the release of "Grand Theft Auto IV's" first batch of episodic content until the company's first fiscal quarter of 2009, which runs from November 1 to January 31. It was originally supposed to come int he quarter ending October 31.

Take Two's official word is that the delay is to "provide a better balance in Take-Two's release schedule." That does make sense. But I wonder whether Rockstar was going to have it done? When I spoke to Dan Houser in April, he said that "there's not much going on with it" and that they probably wouldn't start thinking about it until after "GTA IV" shipped. Even assuming they got right to work in May, that's only six months to produce something pretty substantial.

More coming on Take-Two Interactive earnings soon, but I had to immediately post the new sales figures from "Grand Theft Auto IV." Take Two revealed that it as of May 31, the game has sold 8.5 million units to consumers and 11 million total into retailers (meaning that's what stores ordered and eventually expected to sell.

Remember that in its first week, "GTA IV" sold 6 million units. So things have slowed down a bit since then, but it's still racking up huge numbers and seems well on its way to being the best selling Xbox 360 and PS3 games (Infinity Ward recently revealed that "Call of Duty 4" has sold over 10 million units, but I don't know how many of those were PC).

Based on the $500 million-plus figure that Take Two put out along with first week sales, basic math indicates that is has now generated over $700 million in sales, with over $900 million worth of games sold into retail.

It can't be a coincidence that Sam Houser is talking to the Wall Street Journal today about Electronic Arts.

With EA's bid for Take-Two expiring on Friday, Houser is making it pretty clear -- as far as he could  given the circumstances and his reputation -- that he'd have no problem with the deal going through. This is the key part of the story, as far as I can tell:

If EA succeeds in acquiring Take-Two, some analysts believe EA's star developers might demand a bigger share of game proceeds.

Another possible kink: Rockstar's history of autonomy. If EA ends up with Take-Two, Mr. Houser says it's unlikely that he would go so far as to seek EA's approval for game content. Still, he calls Mr. Riccitiello "the real deal" and sees some appeal in an EA alliance, which he says would make Rockstar a "much smaller fish in much bigger pond."

"I'm not someone who has any kind of problem with that," says Mr. Houser, who says EA turned him down for a job in the late 1990s.

As any reporter knows, business executives only talk when they have a good reason (or at least a reason they think is good). Sometimes it's as simple as wanting to publicize a product or themselves. Sometimes they're trying to raise their own profile or that of their company. Sometimes they're looking to push ongoing negotiations in a certain direction. I certainly know most sources don't talk to me out of the kindness of their hearts.

So when Rockstar chief Sam Houser goes on the record several weeks after "GTA IV" launches, but just a few days before Take-Two shareholders have to decide whether to accept EA's $26 per-share offer, and has nice things to say about John Riccitiello, he's telling the world that he's cool with this deal, if not outright endorsing it.

His actual quote may be very mild, but it's his decision to talk right now that speaks volumes. He also speaks about Rockstar's reputation for independence, and the story goes into the label's "bad boy" reputation, which to me is a symbol to investors that Rockstar doesn't intend to change one iota under EA, which is to say they intend to keep making hugely successful "GTA" games just like they always have.

The only question is, what does Strauss Zelnick think of it? The fact that Take-Two COO Gary Dale (who formerly worked with Rockstar) was allowed to talk on the record means that Zelnick must have not fought against the story, at a minimum (Rockstar does have its own very independent PR strategy).

So is Zelnick signaling that he's softening on his resistance to the deal at all now that "GTA IV" is out and a big hit? Will Houser's signal that he and his Rockstar team will be just fine under EA motivate any more Take-Two shareholders to sell? We'll find out by Friday.

PS Too bad the Housers remain so resistant to having images of themselves in public. I would have loved to see one of those classic WSJ sketches of Sam the way he's described: "[sporting] a scruffy beard that stretches to the top of his chest."

Remember when I reported last month that, according to Take-Two Sources, "Grand Theft Auto IV" was on track to sell over $400 million at retail in its first week? Turns out my sources underestimated by around $100 million.

As I'm reporting in Variety this morning, Take-Two and Rockstar actually sold more than $500 million worth of "GTA IV" units, totalling more than 6 million units. That demolishes the $300 million-plus record that "Halo 3" set in September.

In fact, "GTA IV" broke that record on its first day, selling $310 million, or 3.6 million units on April 29. "Halo 3" sold $170 million on its first day in the U.S. (the game didn't quite have a simultaneous worldwide release)

And to the extent that it matters -- only a bit, in my book, given how different the economic model is -- it's bigger than the closest comparable box office record we could find: $404 million over six days for "Pirates of the Caribbean: at World's End."

Given that huge first week figure and that there's likely to be a surge in sales come the holidays  (at least amongst the more permissive or clueless parents out there), I'd say "GTA IV" has a very good shot at beating "San Andreas'" franchise record of 21.5 million units.

Strauss Zelnick and his team are sure to be happy, since this make's Electronic Arts' case that it can do an even better job with the "GTA" franchise than Take-Two a bit harder to argue. It'll be interesting to see today whether investors had sales this massive built into Take-Two's stock price or if its get a bump.

As part of its presentation to analysts today, Take-Two Interactive presented a few "potential untapped opprtunities" in markets it hasn't yet entered, including MMO's and mobile, as well as licensing to "traditional" media or, I assume, producing itself.

On a slide that was part of its presentation, which I copied above, it even named some potential names, noting that "Bioshock" and "Civilization" could both make great MMOs and that "Bioshock" and "Carnival Games" could work as mobile games.

These are only possiblities, of course, and not reason for fanboys to start clearing space on their hard drives or buying a powerful new phone. Given the way analyst presentations work, I take it as more Take-Two demonstrating to those in attendance that it can move into these markets if/when it is ready, because it has properties that would translate well. It's not a hint that the "Bioshock" MMO is actually in development.

As for the "Bioshock" movie, that should be a big "duh" to Cut Scene readers. As I wrote last month, "Take-Two has been bombarded with  requests from producers and studios interested in obtaining the rights, agents interested in representing them, etc." The only question is which big name is going to get the rights. And whether Take-Two will try to get commercially/creatively involved itself, possibly investing its own money.

Also of note: Executive Chairman Strauss Zelnick said that online play is becoming increasingly important. "Not all of our games have been multi-player," he noted. "Going forward, the bulk of them will be."

My immediate thought? I can't wait to play "Bioshock 2" online multi-player next year. I want to be the Big Daddy.

Much more on Take-Two Interactive earnings to come soon, but I had to post right away that the publisher has set a release date for the widely known but never before confirmed "Bioshock 2":  the fourth quarter of its fiscal 2009, which means between August and October of that year.

As expected, it's being made in the recently formed 2K Marin studio up in northern California, which has some transplants from 2K Boston and 2K Australia, which made the first "Bioshock," but not the original game's creative director and public face Ken Levine.

If you thought "Bioshock" was as genius as I did, you're very excited for early fall 2009 and also a bit nervous whether a sequel can live up to the original's greatness, or its awesome level of innovation.

Take-Two also confirmed during the its conference call with analysts that Ken Levine, creative director of the first "Bioshock," "will be working on 'Bioshock 2,'" but also noted that he's working on a new game at his studio 2K Boston and didn't indicate how involved he will be in the sequel. Sounds like it'll just be a consulting gig.

(For the "much more," check out my story on Take-Two's earnings and the latest on Electronic Arts' bid right here.)

As Reuters reported last night, the dramatic sell-off of Take-Two Interactive stock by two of its biggest share holders -- Oppenheimer Funds and Fidelity Mutual Funds -- means that some very smart people on Wall Street think the company's stock isn't going any higher than the $26 range it hit after EA's bid.

Which means they don't think EA is going to increase its bid, nor is another publisher or a big media company going to come in and offer more.

And also means that, no matter how well "GTA IV" sells, they also don't think Take-Two stock is going to naturally go higher than $26 anytime soon.

Which means the Take-Two board's argument that their company is worth more than the $26 Electronic Arts has offered isn't too convincing to Wall Street right now.

As Pachter said, "[These shareholders] are voting on this deal and they are voting with their feet. They know they have no leverage."

Which means Strauss Zelnick et al will either have to take EA's bid, or prove two of their (formerly) biggest shareholders wrong.

Next up in the ongoing drama: Take-Two earnings coming this afternoon.

I literally just finished writing my review of Ubisoft's "Lost: Via Domus" and will be linking to it, plus providing lots more thoughts and details, when it goes online later today or tomorrow morning.

But one thing I have to get off my chest right away: Remember that hacking mini-game from "Bioshock?" (see left) Some people found it fun, some thought it was tedious, but it was a substantial and somewhat controversial part of the game.

"Lost: Via Domus" rips it off almost entirely. The only difference is that there's no timer and different pieces alter the voltage of the electricity flow in different ways, which is important to the solution. But the basic experience is remarkably similar, right down to some identical sound effects. Coming so soon after "Bioshock," it's downright bizarre.

Of course, the big difference is that in "Bioshock," the hacking mini-game is a break from the awesome, exciting action. In "Lost: Via Domus," it's pretty much the most exciting thing players do in the entire game. But the review's not posted and I'm getting ahead of myself...

This week may have been the ultimate proof of just how hard it is for independent publishers -- meaning anyone who doesn't generate around $1 billion per year in revenue or more.

First Take-Two is targeted in an aggressive takeover bid by Electronic Arts, whose CEO justifies it by saying that in the current industry, "the need for scale is becoming more pronounced." Even Take-Two executive chairman Strauss Zelnick admitted that, as an industry trend, "we'll see continued consolidation."

In the wake of that, THQ, Midway, and Atari, all of which are struggling financially in large part because they're just too small, got big stock boosts on Monday following the Take-Two bid, indicating that Wall Street thinks they're going to be acquired.

(Outside the videogame industry, but within media, it's also worth noting the demise of New Line and its integration into Warner Bros. as evidence of this trend.)

Now we have Sci/Eidos engaging in a massive restructuring after it wasn't able to close a deal with any of its potential acquirers. "Our infrastructure is too big and expensive for the scale of the business," CEO Phil Rogers said in a statement. "The cost of delivering world-class games has increased significantly and we must provide appropriate levels of resource to maximize these opportunities."

Translation: The costs of making, marketing and distributing a diverse slate of games has become too big for a small publisher that really has just one hit franchise ("Tomb Raider"). So how is Sci/Eidos going to adapt?

-Changing to a studio structure focused on franchises like "Tomb Raider," "Hitman," and "Deux Ex."

-Create a casual and online gaming division called "Eidos Play."

-Cancel 14 unnamed projects in development. (These are presumably mostly new properties -- the kind that a small publisher can't afford to take a $20 million or $40 million risk on)

-Lay off 25% of its workforce, or about 250 people

Rogers was pretty blunt about Eidos' performance in the second half of last year, during which it lost  $162 million on $145 million of revenue (roughly translated). Losing more money than you take in revenue is, to put it bluntly, dismal.

Close watchers of the videogame industry will notice something about Eidos' plans -- it's remarkable similar to what Zelnick and CEO Ben Feder have been doing with Take-Two in the past year. Take-Two is organized around studios like Rockstar, its sports unit, and now 2K Boston, maker of "Bioshock." It laid people off. It even started a casual division last fall called "2K Play." Couldn't Eidos at least have come up with a more original name?

For more on the problems of independent publishers and the trend toward consolidation, I highly/humbly recommend a story I have on the topic in this week's weekly Variety, which just posted online. There's one quote that seems particularly apt given Sci/Eidos' news:

"The financial pressures of competing have gotten so acute that scale has become critical," says Arcadia Investment analyst John Taylor. "Most of the independents with sales below $1 billion per year are going to struggle."

The Wall Street Journal just posted a good story looking at the much debated issue of ZelnickMedia's new compensation package from all sides.

As an applied ethics expert quoted in the piece says, it's certainly "ethically problematic" that the firm, which includes executive chairman Strauss Zelnick, CEO Ben Feder, and exec VP Karl Slatoff, got a big raise amidst a takeover bid from EA that shareholders didn't know about at the time. Particularly since it gives Zelnick a chunk of shares that are supposed to vest over time but half of which will vest immediately if Take-Two is acquired.

In other words, Zelnick gets a healthy payday if a deal that the management, but not shareholders, knew could happen at the time goes through.

The truly cynical will also note that perhaps Zelnick and his team have said they won't negotiate with EA until at least April 30, the day after "GTA IV" comes out, because that will be after the company's annual meeting where the new compensation package has to be approved.

On the other hand, I think Zelnick makes a very fair case that he has become much more actively involved in the company than he  planned when becoming chairman last spring, thus meriting the raise, which also made him executive chairman. Not to mention the very fact that EA is offering $26 per share, a 50% bonus over current prices, indicates the company is doing pretty well under him.

And while one may complain that in the grand scheme of things giving executives a "golden parachute" when their firm gets acquired is outrageous, it's certainly standard practice.

The only way this will turn out really disturbing will be if, after April 30, Zelnick ends up accepting EA's offer of $26 per share or something close to it. That's pure naked greed just to get his golden parachute. Otherwise, he certainly has a plausible case that he's doing what's best for shareholders.

I have a big story in tomorrow's Daily Variety detailing all the machinations in the EA/Take-Two battle today, which I hope you'll read if you're interested in what I think is the most important news in the media business so far this year.

But I thought Cut Scene readers would be interested in more of what Take-Two executive chairman Strauss Zelnick had to say when I interviewed him today. So here's the full transcript, or at least the on-the-record parts. Topics Mr. Zelnick didn't want to discuss publicly included EA's attempt to buy Take-Two last year and whether he has been approached by other potential buyers recently.

On how he views EA's going public with its acquisition offer for Take-Two after it was rejected by the board:

This isn't personal. It's business. I think both parties are conducting themselves in accordance with their own strategic goals and in accordance with what good governance demands.

Does the offer to re-start talks with EA on April 30 (the day after "Grand Theft Auto IV" comes out) after EA's move today?

The timing of this deal is wrong and the value remains insufficient... The timing is out of our control now that it's in the public eye, but the fact remains that the value is woefully inadequate. Of course, as a public company one has an obligation to talk to legitimate interested parties at any time, but one the offer goes public, the tenor changes. We've seen what is on the table and we have already rejected it. There's not much else for us to do right now but listen to our shareholders and the market.

Have you talked to major institutional shareholders about the offer?

Off the record only.

On EA's assertion that global scale in the videogame business is imperative and Take-Two doesn't have it:

Historically, that's more or less case. But we have have made strides and reduced costs. We significantly cleaned up our operations. We put in place strong financing. We have hits other than "GTA." "Bioshock" sold over 2 million units. "Carnival Games" sold over one million. We are proud of those achievements and we are ready to achieve plenty more.

Is the consolidation of smaller publishers like yours inevitable in the near-term?

I have said before that I see consolidation occurring. There are two times when consolidation typically occurs: When an industry is growing rapidly or declining. We're growing and so I do believe we'll see continues consolidation. But we are a very strong company. This isn't about majors vs. independents. Take-Two is hardly a boutique firm.

EA says this is the perfect time to go ahead with an acquisition deal because development and marketing and distribution plans for "GTA IV" must be almost done and are at this point "essentially mechanical." Do you agree?

We are in charge of our own business. No one else. The release is two months away and that's what we need to be focusing on. It's not fully baked and ready to go with the push of a button. To present it as such is a little naive.

Looks like I'm not the only one who thinks that EA's bid for Take-Two signifies a period of consolidation coming to the videogame business. Take a look at the performance of several small and mid-sized publishers' stocks Monday, none of whom had any news of their own:

THQ: Up 10% to $9.65

Midway: Up 7% to $2.19

Atari: Up 13% to $1.61

Anybody want to take bets on how many of those companies, along with some European publishers like Eidos and maybe even Ubisoft, will still be independent a year from now?

Lots more to come on this week's big news, but the most interesting tidbit from EA's conference call that just ended may have been this: According to EA, the same deal almost happened a year ago.

CEO John Riccitiello said that in March and April of 2007, which is just when he was joining the company, EA was "very serious about concluding a transaction" and "got very close to making a proposal." But at "the eleventh hour" Riccitiello said he recommended that the EA board not pursue acquiring Take-Two because it wasn't ready to handle the integration. This is before the publisher restructured itself with four labels, brought in new executives like casual games topper Kathy Vrabeck and sports topper Peter Moore, and acquired Bioware/Pandemic.

"I didn't want EA to drop the ball one execution [and] I purposely waited until late this summer to reach out again after we had established our new stragegy," Riccitiello said. Apparently he then began informal discussions with Take-Two chairman Strauss Zelnick last summer and started formal discussions about an acquisition in December, with Take 2 saying it was uninterested in January and then two official offers coming in February, both of which, as we now know, were rejected.

Haven't heard Take-Two's side of this story yet, but it's interesting to hear that EA almost bought the company just as Zelnick and CEO Ben Feder were starting their jobs. If Riccitiello's version of history is correct, the new management team might have ended up doing nothing more than take over a scandal ridden company and immediately sell it, instead of becoming major industry players as they are now.

Update, 5:35 PM: Strauss Zelnick told me that EA's aborted takeover bid last year came just before he was named chairman. So it looks like if EA hadn't backed out, Zelnick woud never have taken over Take-Two.

I'll have much more to say on EA's attempt to buy Take-Two tomorrow as I do more reporting, but for all the details as we know them now, be sure to read my story in tomorrow's Daily Variety.

As a first reaction, though, I think the proof is now incontrovertible that the name of the game in the videogame biz is consolidation. With a 50% growth rate last year, big media getting more and more involved, and franchises being key, the business is about to go through rapid changes. Basically, we can expect any small publisher to either get bought or die in the next year or two, I'd say.

The acquirers will be EA (clearly hungry to buy franchises and development studios), ActivisionBlizzard, and big media congloms that are getting interested in videogames -- companies like Disney, Warner Bros. and MTV.

So, outside of the Japanese companies and first parties, let's take a look at who else is left and what's their likely fate:

-Take-Two: Obviously a tasty acquisition target, since it's relatively inexpensive but has an ultra-valuable property in "Grand Theft Auto" and a few other decent ones, like its sports line and "Bioshock."

-THQ: Its strength is licenses, but the Nickelodeon titles did poorly last year and it's likely to lose the Pixar license after making its last game in 2011 (it already lost 2010's "Toy Story 3" to Disney Interactive). It's struggling to build some valuable internal franchises, but doesn't have a lot. As such, anyone who wants to get their hands on its internal development studios and name might be able to buy THQ at not too big a premium over its trading price, since future prospects don't look all that bright currently.

-Ubisoft: Doing pretty well and it's protected by tough European anti-trust laws. Probably just a bit too expensive and too much of a burden for anyone to buy. Wouldn't be surprised to see it be the smallest major publisher left standing when the current acquisition wave is done.

-Eidos/Sci: There has been a lot of takeover talk and, like Take-Two, it has one pretty well known property in "Tomb Raider." Despite recent setbacks, somebody will succeed in taking over Eidos, I presume. Could even be Warner Bros., which already owns 10%.

-LucasArts: Privately held and would lose most of its value if separated from "Star Wars" owner LucasFilm. It's not going anywhere.

-Midway: It's been struggling big time for the past few years. It has "Mortal Kombat" and... ummmm.... My guess is new chairwoman Shari Redstone is looking to sell. But will anyone want this underperforming company?

-Atari: Nice to buy for the name, but that's about all you'd get. Not sure why anybody would bother at this point. A more likely fate is something like Acclaim, where a private investor interested in the biz will buy the Atari name to use for a new business plan.

-Codemasters: Goldman Sachs recently invested $99 million in this small British company, which isn't too well known outside of Europe. Probably too soon for private equity investors to cash out, plus it doesn't have any appealing franchises or an appealing brand name for American publishers, I'd guess.

It's well known that Strauss Zelnick has been heavily involved in Take Two's operation since he and his cohorts took over the company last year when the old board and management team was ousted. Zelnick, of course, used to run BMG back when its short-lived interactive division released the first "Grand Theft Auto" from current Take Two subsidiary Rockstar.

On Friday, he got the go-ahead to be officially involved in day-to-day operations by switching from non-executive chairman to executive chairman. What does that mean? Basically, it's now his job to be involved in the company's day-to-day operations along with CEO Ben Feder (whose contract has been extended through 2012). It also means Zelnick, whose career has included music and movies, is dedicating himself pretty whole-heartedly to the videogame biz (at least until some big media conglom swallows up Take Two). And with the kind of growth videogames are seeing compared to other media businesses, who can blame him?

(It's worth noting that executive chairmen are pretty unusual in the business world these days, where if the CEO and chairman aren't the same person, the chairman is usually not involved in day-to-day operations. But two major videogame companies now have one: Take Two and Electronic Arts, where former CEO Larry Probst remains executive chairman.)

It seems that most every game most every successful video game gets a chance to be turned into a video game, regardless of whether it even has a coherent story.

Which has naturally led everyone to ask: What's up with Bioshock? Not only was it one of the best selling original games of last year, it was critically acclaimed, with specific mention made by many of its cinematic setting, characters, music, and, to a lesser extent, story.

Joystiq reported last month that one production company has been discussing a movie adaptation with "Bioshock" publisher Take 2. But trust me, they're far from the only ones.

From what I hear, you'd be hard pressed to find a production company, studio, or agency with at least one videogame savvy employee that isn't interested in "Bioshock." Take 2 has been bombarded with  requests from producers and studios interested in obtaining the rights, agents interested in representing them, etc.

But so far they're playing it tight to the vest. While Take 2 hasn't closed the door, it isn't ready to make a deal yet. Are they waiting for the right offer? Hoping to parlay it into some bigger alliance with an agency or studio? We'll have to wait and find out. But the lack of a "Bioshock" movie deal certainly isn't for want of Hollywood trying.

Just spoke to a very good source -- someone who would know -- who told me the same thing that Reuters just recently reported: there's no truth to the rumor on MCV,  subsequent picked up by numerous websites, that Viacom has made a $1.5 billion bid for Take Two.

You can be sure that Viacom, like other big media congloms, has looked at a number of videogame publishers as potential acquisitions. And you can be sure that Take Two, given that it has some valuable properties but isn't nearly as expensive as EA or Activision/Blizzard, is high on the list of potential targets for all of them. But there's no offer on the table from Viacom to buy Take Two.

(If Viacom ever does buy a videogame  publisher, it will be very interesting if it's not Midway, in which Viacom chairman Sumner Redstone has a controlling ownership stake and has his daughter Shari serving as chairman.)